“The One Wind Stock to Buy … Before Thursday” Green Chip

Man, the Green Chip guys are busy. First they got going with the Alternative Energy Speculator service, which we’ve looked at a few times, and now there’s another service of theirs that I’ve never looked at, Green Chip International.

Seems to be the mantra of the newsletter business: keep launching new services or die. This one will set you back $249, and it’s run by Nick Hodges, Sam Hopkins, and Jeff Siegel.

Your favorite friendly Stock Gumshoe makes no such demands, and doesn’t have quite as many mouths to feed … so let’s just look and see if we can tease out this teaser, eh?

It’s all about wind power, as you might have guessed from my cryptic headline. And there’s a pretty good description of where wind power is going, and how much demand there is for this clean energy.

In their words:

“In its most recent report, the European Wind Energy Association (EWEA) said that wind became the leader in terms of new installed energy capacity.

“Through 2020, wind is expected to account for 34% of new generating capacity. It’ll account for 46% from 2020-2030.

“And the goal of attaining 12-14% of Europe’s power from wind by 2020 is well within reach.”

Can’t argue with that. Wind power has been growing in importance in Europe for many years, and now is really starting to get a foothold in some parts of the US. Especially in places where it doesn’t mess up the ocean view of any powerful US Senators. Lots of places in Texas, where the wind comes whipping down the plain before it gets to Oklahoma, are seeing good buildup of wind power that doesn’t much interfere with the cattle grazing underneath the giant turbines, and there are big offshore wind farms as well.

So we accept the premise that wind power is important, and perhaps growing more so as alternative energy mandates increase. Does that mean the Green Chip International folks have the best pick in mind for us?

Here’s the key part of the teaser, extracted from the letter:

“But the one I’m most excited about is going to release its first quarter earnings this Thursday.

“Company revenues are expected to rise nearly 20% and net profit is forecast to rise 135% over the same quarter numbers from 2007.

“When these numbers come out, I assure you investors will go crazy. Some analysts are predicting a target price some 23% higher than it is now.

“This is surely a company you want to be invested in before the first quarter numbers are released. As I write this, the price is already starting to tick northward.”

That, the trusty Thinkolator is heard to opine, must be Vestas Wind Systems (VWDRY for the ADR on the pink sheets, trades with pretty decent volume … or you can buy it on put’near all the European exchanges, too)

Vestas is a big producer of wind turbines — the biggest, they claim, with a 23% market share. These are the things that I’d call windmills, the big spooky metal creatures that dot many gusty landscapes these days.

Here’s an excerpt of what Dow Jones reports the earnings should be like:

“DJ Survey of 12 Analysts
Average Revenue: EUR930.1M, up 22% (from EUR760M in 1Q
Average EBIT: EUR53.8M (from EUR20M in 1Q 2007)
Average Net Profit: EUR39.3 (from EUR17M in 1Q 2007)”

And their little editorial note on same:

Note: Vestas 1Q net profit is expected to come in higher on robust growth and strong markets. Analysts will be watching for updates on guidance for full year. Comments on risks to the supply chain and rising raw materials prices will be eyed, as will discussion of the impact of further appreciation of euro against the dollar.”

That note probably goes about as far as I’d want to in venturing an opinion on this one — I haven’t dug deeply into Vestas’ numbers. Analysts seem to be relying significantly on the company’s assertion that they will get more efficient and expand margins steadily over the next couple years. They are shooting for something in the low-teens, margin-wise — while Vestas has had expanding margins as it became profitable in the last couple years (which makes sense), they certainly have never had profit margins anywhere near the 13-15% level that some expect. So we’ll have to hope that higher volume, lower technology costs, and, perhaps, other cost reductions come into play to grow into that hoped-for level of profitability. Management has apparently indicated that this is possible, guiding toward 10-12% margins “after 2008.”

The shares are trading at a PE of somewhere in the mid-20s, depending on whose estimates you use for 2008. The trailing PE is much higher, near 50. The shares have had a few big bumps up and down over the past six months, but since February they’ve more or less been trading in the current mid-$30s range, a range they’re near the top of at $36.50 as I type. They’re certainly growing quickly, and are showing some signs of building up enough capacity to meet the growing demand — they’re apparently shooting for a doubling of capacity by 2010, but to some degree this depends on the ability of their suppliers to keep up production. I assume that they rely on outside producers for the actual generators that are housed in the turbines/windmills, as well as probably for the carbon fiber or aluminum or whatever for the blades, etc., and at various points in the past couple years I know I’ve heard about shortages in those kinds of parts/supplies that have slowed down some wind projects. Don’t know to what extent that might impact Vestas, and as the leader in the industry they’re probably locked in with a lot of their suppliers so perhaps it’s not as big a concern … but it’s worth reading up on and understanding if you want to invest in the company.

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Their valuation seems to be more or less in line with some of the other big European wind-related companies like Suzlon, Gamesa, and Nordex, but that’s just from a superficial glance.

It looks pretty interesting to me as a wind power play, though I wouldn’t venture a guess as to whether they’ll do well after their earnings on Thursday or not.

So what do you think? Will Vestas huff and puff and blow down your portfolio?